U.S. Aluminum Tariffs Alter Global Trade, Fail to Boost Domestic Smelting Industry

The U.S. imposed 25% tariffs on aluminum imports on March 12, 2025, aiming to boost domestic production. However, high energy costs and structural issues have led to further smelter closures, such as Alcoa's Intalco and Century Aluminum's Hawesville facilities. The U.S. remains reliant on imports and secondary aluminum production, with tariffs raising costs for manufacturers and consumers. Global trade has shifted, with Canadian exports redirected to Europe. The U.S. aluminum industry struggles with energy costs, hindering new smelting investments despite increased domestic scrap utilization.

Tariffs Expand, Trade Flows Shift

On March 12, 2025, the U.S. government expanded its Section 232 tariffs to impose a 25% duty on all aluminum and steel imports, eliminating previous exemptions and extending coverage to products such as empty aluminum cans and canned beer. The move was intended to bolster domestic production and reduce reliance on foreign suppliers, particularly China and Canada.

The immediate effect was a reshuffling of global aluminum trade. Canadian producers, facing additional U.S. tariffs, redirected exports to Europe, where premiums were more favorable. This created a supply gap in the U.S. market, which was partially filled by European and other international suppliers. According to Hydro, one of the world’s largest aluminum producers, this redirection of trade was a direct response to the tariff structure, which made U.S. market access more costly and less attractive for traditional suppliers.

Domestic Production Stagnates Amid High Energy Costs

Despite the policy’s protectionist intent, U.S. primary aluminum production has not rebounded. In fact, the industry continues to contract. As of 2021, U.S. smelters were operating at just 55% of capacity, compared to 95% in Canada and 88% globally. The U.S. accounted for less than 2% of global aluminum supply, a sharp decline from its position as the world’s leading producer in 2000.

The primary obstacle to domestic smelting remains the high cost of electricity. U.S. smelters typically rely on short-term power contracts, which expose them to volatile and often elevated energy prices. In contrast, smelters in Canada, Norway, and the Middle East benefit from long-term contracts or captive power generation, significantly reducing their production costs.

According to Wood Mackenzie, energy costs for U.S. aluminum smelters average around $550 per tonne, nearly double the $290 per tonne cost for Canadian facilities. This disparity has made U.S. smelting economically unviable in many cases.

Smelter Closures Underscore Industry Challenges

Recent closures highlight the ongoing struggles of the U.S. aluminum sector. In March 2023, Alcoa Corporation permanently shut down its Intalco smelter in Washington state, citing the lack of access to competitively priced power. The facility, with a capacity of 279,000 metric tons, had been idle since 2020.

Similarly, in June 2022, Century Aluminum idled its Hawesville, Kentucky smelter—the largest producer of military-grade aluminum in North America. The company attributed the decision to a tripling of power costs, which rendered operations unsustainable. The curtailment was expected to last up to a year, but no restart has been announced as of May 2025.

These closures have further reduced the already limited domestic capacity for primary aluminum production, undermining the strategic objective of the tariffs.

Secondary Aluminum and Scrap Prices Rise

While primary production has faltered, the U.S. remains a major producer of secondary aluminum, which is less energy-intensive and relies on recycled scrap. However, even this segment has not been immune to the effects of tariffs.

Hydro, which operates extrusion facilities in the U.S., reported that domestic scrap prices have risen in line with the tariff-inflated Midwest premium. Although the company sources local scrap, the market price reflects the broader cost environment shaped by import duties. As a result, the tariff burden is effectively passed on to downstream users.

Hydro CFO Trond Olaf Christophersen explained that the company pays the tariff cost indirectly through higher scrap prices, which are then passed on to customers. This has led to price increases for end products, such as automotive components and building materials.

Downstream Impact and Consumer Costs

The downstream effects of the aluminum tariffs are being felt across multiple industries. Thule Group, a manufacturer of automotive cargo boxes and a Hydro customer, announced a 10% price increase on its U.S. products, despite producing most of them domestically. The company cited rising raw material costs, including aluminum, as the primary driver.

JPMorgan analysts noted that European aluminum premiums were over 30% lower than U.S. premiums year-to-date, underscoring the cost divergence created by American trade policy. This price gap has made U.S. manufacturers less competitive globally and increased costs for domestic consumers.

Global Trade Realignment

The tariffs have also contributed to broader shifts in global trade. According to the U.S. Census Bureau, the country imported 44% of its aluminum in 2023, with Canada accounting for more than half of those imports. With Canadian exports redirected and U.S. production stagnant, the U.S. has had to diversify its import sources, increasing reliance on European and Asian suppliers.

This realignment has not only affected trade volumes but also altered shipping routes and logistics patterns. Flexport, a supply chain management firm, reported a 60% decline in ocean freight from China to the U.S. following the imposition of 145% tariffs on Chinese goods in April 2025. While this figure includes broader trade tensions, it reflects the extent to which tariffs are reshaping global supply chains.

Industry Outlook

Despite the reshuffling of trade flows and increased domestic scrap utilization, the U.S. aluminum industry remains constrained by structural challenges. The lack of competitively priced, long-term power contracts continues to deter investment in new smelting capacity. Hydro’s Christophersen stated that the company sees no viable path to building a smelter in the U.S. under current market conditions.

The proliferation of data centers and the AI boom have further tightened the power market, as tech companies outbid industrial users for electricity. This competition has exacerbated the energy cost disadvantage faced by aluminum producers.

As of early 2025, the U.S. aluminum sector remains in a state of transition. While tariffs have succeeded in redirecting trade and raising domestic prices, they have not reversed the long-term decline in primary production. Without addressing the underlying cost structure—particularly energy—tariffs alone appear insufficient to restore the industry’s competitiveness.

References

• The aluminum sector isn't moving to the U.S. despite tariffs — due to one key reason
• Tariffs in the second Trump administration - Wikipedia
• Understanding the economic ripple effects of tariffs on trade
• Hydro outlines tariff impact on aluminium business
• The impact Trump's tariffs are already having on global supply chains and U.S. businesses
• Trump tariffs live updates: Trump team said to eye cutting tariffs to 60% at US-China talks
• US and UK announce new trade deal, first since Trump imposed global tariffs